Congress’ nonpartisan budget scorekeeper on Tuesday significantly increased its estimate of the U.S. budget gap, predicting that the nation will run a $2 trillion deficit this year.
The latest forecast from the Congressional Budget Office is up from its estimate of $1.6 trillion earlier this year. Four main things are driving that $400 billion increase, CBO said — citing President Joe Biden’s student loan relief policies as the No. 1 cause of the bigger gap between the amount of money flowing into federal coffers and cash going out this year.
New student loan policies will cost about $145 billion during the current fiscal year, which runs through September, CBO predicted. That includes higher subsidies for student loans and the Biden administration’s plan to reduce balances for many borrowers.
The budget office also increased its longer-term deficit forecast, predicting that the budget gap will be $24 trillion over the next decade. That’s an increase of $2.1 trillion from its estimate earlier this year. Bills enacted in recent months — including the $95 billion foreign aid package Congress cleared in April for Ukraine, Israel and Taiwan — are the single largest driver of that multi-year growth in the budget gap, adding $1.6 trillion in projected deficits.
Interest payments on the nation’s nearly $35 trillion debt, as well as the deficit, are both “large by historical standards,” CBO Director Phillip Swagel said.
Among other drivers of the bigger projected deficit, spending is also projected to be about $50 billion higher during the current fiscal year because Medicaid payments are exceeding earlier estimates. Another $70 billion of the increased deficit projection for this year is attributed to delays following recent bank failures, since the Federal Deposit Insurance Corporation isn’t recovering payments as quickly as expected.
But that bank-related money will flow in later, “almost entirely” making up for the growth in this year’s deficit, CBO said.
In addition, the budget office hiked its projections for the national debt over the next decade, estimating that debt held by the public would rise to 122 percent of GDP by 2034 — the highest level ever recorded.
CBO predicted that economic growth would slow from 3.1 percent in 2023 to 2 percent this year amid higher unemployment and lower inflation. Short-term interest rates will change little this year, CBO forecast.
